Suppose the Economy Is in Long-Run Equilibrium

question 463

Multiple Choice

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil are discovered in the country, then in the short-run

• A)real GDP will rise and the price level might rise, fall, or stay the same.
• B)real GDP will fall and the price level might rise, fall, or stay the same.
• C)the price level will rise, and real GDP might rise, fall, or stay the same.
• D)the price level will fall, and real GDP might rise, fall, or stay the same.

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Definitions:

Total Income

The sum of all earnings obtained by an individual or entity, including wages, salaries, benefits, and income from investments, before any deductions.

Complementary

Goods or services that are used together, where the consumption or use of one increases the value or demand for the other.

Fixed Proportions

A production condition where inputs are used in constant ratios, without substitution between them, over a range of output levels.

Demand for Labor

The total amount of workers that employers want to hire at a given wage rate and time.